Van Eck designs a smart-beta ETF that looks for companies with a competitive advantage.
Van Eck Associates, the New York-based asset manager, filed paperwork with the Securities and Exchange Commission to bring to market an ETF based on the “moat” concept popularized by Warren Buffett that involves investing in companies with sustainable competitive advantages that often translate into dependable earnings over time.
The Market Vectors Morningstar Wide Moat Research ETF tracks the Morningstar Wide Moat Focus Index, which represents 97 percent of U.S. market capitalization. Utilizing a smart-beta approach that includes qualitative and quantitative factors, the Morningstar index methodology winnows down that big group and selects just the top 20 companies as determined by the ratio of the index provider’s estimate of fair value to the stock price.
As of Nov. 30, the index included 20 securities of companies with a market capitalization range of between about $1.3 billion to $167.9 billion and an average market capitalization of $45.7 billion. The Wide Moat Research ETF will invest at least 80 percent of its assets in securities comprising the underlying Morningstar index. The filing didn’t specify what sectors or companies comprise the index currently comprises.
The prospectus warned that investors in the Wide Moat Research ETF should be willing to accept a high degree of volatility in the price of the fund’s shares. Part of the reason for that is that the ETF won’t track the broad equities market, subjecting the fund to more nonsystematic risk that comes with more narrowly focused investment strategies.
That said, Van Eck expects that over time, the correlation between the fund’s performance and that of the index before fees and expenses will be 95 percent or better.
The prospectus didn’t say what the fund’s ticker will be or how much it will cost investors.